Business Context and Reporting Period
This Form 8-K, dated April 26, 2011, reports that CenturyLink, Inc. has entered into a definitive Agreement and Plan of Merger with SAVVIS, Inc. The transaction involves a merger subsidiary of CenturyLink merging with and into Savvis, with Savvis continuing as a wholly owned subsidiary. The filing also discloses a Voting Agreement with significant Savvis shareholders and a debt commitment for funding.
Key Financial Metrics and Transaction Terms
- Merger Consideration: Savvis shareholders will receive $30.00 in cash per share plus a variable equity component.
- Equity Component: A fraction of a CenturyLink share calculated as $10.00 divided by the 30-day volume-weighted average trading price of CenturyLink stock. If the average price is $\le$ $34.42, the ratio is fixed at 0.2905 shares per Savvis share.
- Financing: Bank of America Merrill Lynch and Barclays Bank PLC have committed to lend CenturyLink up to $2 billion to fund the acquisition and refinance Savvis debt.
- Termination Fee: Savvis may be obligated to pay CenturyLink a termination fee of $85 million under specific circumstances.
- Shareholder Support: Welsh, Carson, Anderson & Stowe VIII, L.P. and related parties (WCAS Stockholders), owning approximately 23% of Savvis, have agreed to vote in favor of the merger.
Material Changes and Conditions
The filing does not report changes to historical financial performance but outlines material conditions precedent to the transaction closing:
- Approval by Savvis stockholders.
- Expiration of the Hart-Scott-Rodino Antitrust waiting period and other governmental approvals (including FCC and Indian competition regulations).
- Effectiveness of a Form S-4 registration statement and NYSE listing approval for the CenturyLink shares to be issued.
- Absence of litigation prohibiting the merger.
Guidance, Risks, and Contingencies
Outlook and Risks: The filing includes standard forward-looking statements regarding expected efficiencies, cost savings, and accretion, noting these are subject to risks such as integration difficulties, regulatory delays, and competitive pressures. There is no assurance the acquisition will be consummated.
Termination Rights: The agreement may be terminated if the merger is not consummated by January 31, 2012 (subject to extension), if a court prohibits the merger, if Savvis stockholders fail to approve it, or if a party breaches the agreement. CenturyLink may also terminate if the Savvis board withdraws its recommendation or approves a superior proposal.
Investor Verification Checklist
- Verify the final volume-weighted average trading price of CenturyLink stock to determine the exact equity portion of the merger consideration.
- Monitor the status of regulatory approvals, specifically the FCC and antitrust reviews.
- Review the upcoming Form S-4 registration statement for detailed financial projections and risk factors.
- Confirm the outcome of the Savvis stockholder vote on the Merger Agreement.
- Assess the impact of the $2 billion debt commitment on CenturyLink's leverage ratios post-closing.